MANU/SC/0065/1965

Equivalent Citation: AIR1966SC 543, [1966]1SC R656

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 948 of 1964
Decided On: 30.08.1965
Appellants:Bhagwandas Goverdhandas Kedia
Vs.
Respondent:Girdharilal Parshottamdas and Co. and Ors.
Hon'ble Judges/Coram:
J.C. Shah, K.N. Wanchoo and M. Hidayatullah, JJ.
Case Note:
Contract - jurisdiction - Sections 3, 4, and 5 of Indian Contract Act, 1872,
Common Law, Supreme Court Rules, Substantive Law, Contracts Law,
Technical Law and Statutory Law - plaintiff and defendant entered into
contract made by telephonic conversation - defendant failed to perform
contract - plaintiff filed suit in Ahmedabad - defendant contended Civil
Court at Ahmedabad does not have territorial jurisdiction - Trial Court
opined that contract made by conversation on telephone is completed at
place where acceptance of offer is intimated to offeror - Civil Court at
Ahmedabad had jurisdiction to try the suit - High Court rejected defendant's
appeal - appeal before Supreme Court - held, Trial Court right in holding
that part of cause of action arose within jurisdiction of Civil Court at
Ahmedabad where acceptance was communicated by telephone to
plaintiffs.
JUDGMENT
The Judgment of Wanchoo and Shah JJ. Was delivered by Shah J. Hidayatullah, J.
delivered a dissenting Opinion.
J.C. Shah, J.
1. Messrs. Girdharilal Parshottamdas and Company - hereinafter called the plaintiffs -
commenced an action in the City Civil Court at Ahmedabad against the kedia Ginning
Factory and Oil Mills of Khamgaon - hereinafter called the defendants for a decree for
Rs. 31,150/- on the plea that the defendants had failed to supply cotton seed cake
which they had agreed to supply under an oral contract dated July 22, 1959
negotiated between the parties by conversation on long distance telephone. The
plaintiffs submitted that the cause of action for the suit arose at Ahmedabad, because
the defendants had offered to seed cotton seed cake which offer was accepted by the
plaintiffs at Ahmedabad, and also because the defendants were under the contract
bound to supply the goods at Ahmedabad, and the defendants were to received
payment for the goods through a Bank of Ahmedabad. The defendants contended that
the plaintiffs has by a message communicated by telephone offered to purchase
cotton seed cake, and they [the defendants) had accepted the offer at Khamgaon, that
under the contract deliver)' of the goods contracted for was to be made at Khamgaon,
price was also to be paid at Khamgaon and that no part of the cause of action for the

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suit had arisen within the territorial jurisdiction of the City Civil Court Ahemedabad.
2. On the issue of jurisdiction, the Trial Court found that the Plaintiffs had made an
offer form Ahmedabad by long distance telephone to the defendants to purchase the
goods and that the defendants had accepted the offer at khamgaon, that the goods
were under the contract to be delivered at Khamgaon and that payment was also to
be made at Khamgaon. The contract was in the view of the court to be performed at
Khamgaon, and because of the offer made from Ahmedabad to purchase goods the
court at Ahmedabad could not be invested with jurisdiction to entertain the suit. But
the court held that when a contract is made by conversation on telephone, the place
where acceptance of offer is intimated to the offeror, is the place where the contract
is made, and therefore the Civil Court at Ahmedabad had jurisdiction to try the suit. A
revision applications filed by the defendants against the order, directing the suit to
proceed on the merits, was rejected in limine by the High Court of Gujarat. Against
the order of the High Court of Gujarat, this appeal has been preferred with special
leave.
3 . The defendants contend that in the case of a contract by conversation on
telephone, the place where the offer is accepted is the place where the contract is
made, and that court alone has jurisdiction within the territorial jurisdiction of which
the offer is accepted and the acceptance is spoken into the telephone instrument. It is
submitted that the rule which determines the place where a contract is made is
determined by Sections 3 and 4 of the Indian Contract Act, and applies uniformly
whatever may be the mode employed for putting the acceptance into a course of
transmission, and that the decisions of the courts in the United Kingdom, dependent
not upon express statutory provisions but upon he some what elastic rules of
common law, have no bearing in determining this question. The plaintiffs on the
other hand contend that making of an offer is a part of the cause of action in a suit
for damages for breach of contract, and the suit lies in the court within the
jurisdiction of which the offeror has made the offer which on acceptance has resulted
into a contract. Alternatively, they contend that intimation of acceptance of the offer
being essential to the formation of a contract, the contract takes place where such
intimation is received by the offerer. The first contention raised by the plaintiff is
without substance. Making of an offer at a place which has been accepted elsewhere
does not form part of the cause of action in a suit for damages for breach of contract.
Ordinarily it is the acceptance of offer and intimation of that acceptance which result
in a contract. By intimating an offer, when the parties are not in the presence of each
other, the offerer is deemed to be making the offer continuously till the offer reaches
the offeree. The offerer thereby merely intimates his intention to enter into a contract
on the terms of the offer. The offeror cannot impose upon the offeree an obligation to
accept, nor proclaim that silence of the offeree shall be deemed consent. A contract
being the result of an offer made by one party and acceptance of that very offer by
the other, acceptance of the offer and intimation of acceptance by some external
manifestation which the law regards as sufficient is necessary.
4 . By a long and uniform course of decisions the rule is well settled that mere
making of an offer does not form part of the cause of action for damages for breach
of contract which has resulted from acceptance of the offer: see Baroda Oil Cakes
Traders v. Purshottam Narayandas Bagulia and Anr. MANU/MH/0130/1954 :
AIR1954Bom491 . The view to the contrary expressed by a single Judge of the
Madras High Court in Sepulchre Brothers v. Sait Khushal Das Jagjivan Das Mehta
MANU/TN/0127/1941 : I.L.R. (1942) Mad. 243, cannot be accepted as correct.

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5 . The principal contention raised by the defendants raises a problem of some
complexity which must be approached in the light of the relevant principles of the
common law and statutory provisions contained in the Contract Act. A contract unlike
a tort is not unilateral. If there be no meeting of minds no contract may result. There
should therefore be an offer by one party, express or implied, and acceptance of that
offer by the other in the same sense in which it was made by the other. But an
agreement does not result from a mere state of mind: intent to accept an offer or
even a mental resolve to accept an offer does not give rise to a contract. There must
be intent to accept and some external manifestation of that intent by speech, writing
or other act, and acceptance must be communicated to the offeror, unless he has
waived such intimation, or the course of negotiations implies an agreement to the
contrary.
6. The Contract Act does not expressly deal with the place where a contract is made.
Sections 3 and 4 of the Contract act deal with the communication, acceptance and
revocation of proposals. By s. 3 the communication of a proposal, acceptance of a
proposal, and revocation of a proposal and acceptance respectively, are deemed to be
made by any act or omission of the party proposing, accepting or revoking, by which
he intends to communicated such proposal acceptance or revocation, or which has
the effect of communicating it. Section 4 provides:
"The communications of a proposal is complete when it comes to the
knowledge of the person to whom it is made."
7. The communication of an acceptance is Complete, -
as against the proposer, when it is put in a course of transmission to him, so
as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
8. The communication of a revocation is complete -
as against the person who make it, then it is put into a course of
transmission to the person to whom it is made, so as to be out of the power
of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
9. In terms s. 4 deals not with the place where a contract takes place, but with the
completion of communication of a proposal acceptance and revocation. In
determining the place where a contract takes place, the interpretation clauses in s. 2
which largely incorporate the substantive law of contract must be taken into account.
A person signifying to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence
is said to make a proposal Clause [a] When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. A proposal when
accepted, becomes a promise: Clause (b), and every promise and every set of
promises, forming the consideration for each other is an agreement: Clause (e). An
agreement enforceable at law is a contract: Clause (k). By the second clause of s. 4
the communication of an acceptance is complete as against the proposer, when it is
put in a course of transmission to him, so as to be out of the power of the acceptor.
This implies that where communication of an acceptance is made and it is put in a
course of transmission to the proposer, the acceptance is complete as against the

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proposer : as against the acceptor, it becomes complete when it comes to the
knowledge of the proposer. In the matter of communication of revocation it is
provided that as against the person who makes the revocation it becomes complete
when it is put into a course of transmission to the person to whom it is made, so as
to be out of the power of the person who makes it, and as against the person to
whom it is made when it comes to his knowledge. But s. 4 does not imply that the
contract is made qua the proposer at one place and qua the acceptor at another
place. The contract becomes complete as soon as the acceptance is made by the
acceptor and unless otherwise agreed expressly or by necessary implication by the
adoption of a special method of intimation, when the acceptance of offer is intimated
to the offeror.
10. Acceptance and intimation of acceptance of offer are therefore both necessary to
result in a binding contract. In the case of a contract which consists of mutual
promises, the offeror must receive intimation that the offeree has accepted his offer
and has signified his willingness to perform his promise. When parties are in the
presence of each other, the method of communication will depend upon the nature of
the offer and the circumstances in which it is made. When an offer is orally made,
acceptance may be expected to be made by an oral reply, but even a nod or other act
which indubitably intimates acceptance may suffice. If the offeror receives no such
intimation, even if the offeree has resolved to accept the offer a contract may not
result. But on this rule is engrafted an exception based on ground of convenience
which has the merit not a logic or principle in support, but of long acceptance by
judicial decisions. If the parties are not in the presence of each other, and the offeror
has not prescribed a mode ' of communication of acceptance, insistence upon
communication of acceptance of the offer by the offeree would be found to be
inconvenient, when the contract is made by letters sent by post. In Adams v. Lindsell
1 B & Ald. 681, it was ruled as early as in 1818 by the Court of King's Bench in
England that the contract was complete as soon as it was put into transmission. In
Adams's case (1 B & Ald. 681), the defendants wrote a letter to the plaintiff offering
to sell a quantity of wool and requiring an answer by post. The plaintiff accepted the
offer and posted a letter of acceptance, which was delivered to the defendants nearly
a week after they had made their offer. The defendants however sold the goods to a
third party, after the letter of acceptance was posted but before it was received by the
defendants. The defendants were held liable in damages. The Court in that case is
reported to have observed that "if the defendants were not bound by their offer when
accepted by the plaintiffs till the answer was received, they the plaintiffs ought not to
be bound till after they had received the notification that the defendants had received
their answer and assented to it, And so it might go on ad infinitum. The rule Adam's
case 1 B. & Ald. 681, was approved by the House of Lords in Dunlop and others v.
Vincent Higgins and others 1 H.L.C. 381. The rule was based on commercial
expediency, or what Cheshire calls "empirical grounds". It makes a large inroad upon
the concept of consensus, "a meeting of minds" which is the basis of formation of a
contract. It would be futile however to enter upon an academic discussion, whether
the exception is justifiable in strict theory, and acceptable in principle. The exception
has long been recognised in the United Kingdom and in other countries where the law
of contracts is based on the common law of England. Authorities in India also exhibit
a fairly uniform trend that in case of negotiations by post the contract is complete
when acceptance of the offer is put into a course of transmission to the offerer : see
Baroda Oil Cakes Traders' case MANU/MH/0130/1954 : AIR1954Bom491 , and cases
cited therein. A similar rule has been adopted when the offer and acceptance are by
telegrams. The exception to the general rule requiring intimation of acceptance may
be summarised as follows. When by agreement, course of conduct, or usage of trade,

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acceptance by post or telegram is authorised, the bargain is struck and the contract is
complete when the acceptance is put into a course of transmission by the offeree by
posting a letter or dispatching a telegram.
11. The defendants contend that the same rule applies in the case of contracts made
by conversation on telephone. The plaintiffs contend that the rule which applies to
those contracts is the ordinary rule which regards a contract as complete only when
acceptance is intimated to the proposer. In the case of a telephonic conversation, in a
sense the parties are in the presence of each other : each party is able to hear the
voice of the other. There is instantaneous communication of speech intimating offer
and acceptance, rejection or counter offer. Intervention of an electrical impulse which
results in the instantaneous communication of messages from a distance does not
alter the nature of the conversation so as to make it analogous to that of an offer and
acceptance through post or by telegraph.
1 2 . It is true that the Post and Telegraphs Department has general control over
communication by telephone and especially long distance telephone, but that is not a
ground for assuming that the analogy of a contract made by post will govern this
mode of making contracts. In the case of correspondence by post or telegraphic
communication, a third agency intervenes and without the effective intervention of
that third agency, Letters or messages cannot be transmitted. In the case of a
conversation by telephone, once a connection is established there is in the normal
course no further intervention of another agency. Parties holding conversation on the
telephone are unable to see each other: They are also physically separated in space,
but they are in the hearing of each other by the aid of a mechanical contrivance
which makes the voice of one heard by the other instantaneously, and communication
does not depend upon an external agency.
13. In the administration of the law of contracts, the Courts in India have generally
been guided by the rules of the English common law applicable to contracts, where
no statutory provision to the contrary is in force. The courts in the former Presidency
towns by the terms of their respective letters patents, and the courts outside the
Presidency towns by Bengal Regulation III of 1793, Madras Regulation II of 1802 and
Bombay Regulation IV of 1827 and by the diverse Civil Courts act were enjoined in
cases where no specific rule existed to act according to law or equity in the case of
chartered High Court and elsewhere according to justice, equity and good conscience
which expressions have been consistently interpreted to mean the rules of English
common law, so far as they are application to the Indian society and circumstance.
1 4 . In England the Court of Appeal has decided in Entores Ltd. v. Mills Far East
Corporation that:
"................................ Where a contract is made by instantaneous
communication, e.g. by telephone, the contract is complete only when the
acceptance is received by the offeror, since generally an acceptance must be
notified to the offeror to make a binding contract."
1 5 . In Entores Ltd.'s case (1955) 2 Q.B.D. 327 the plaintiff made an offer from
London By Telex to the agents in Holland of the defendant Corporation, whose
headquarters were in New York, for the purchase of certain goods, and the offer was
accepted by a communication received on the plaintiffs Telex machine in London. On
the allegation that breach of contract was committed by the defendant Corporation,
the plaintiff sought leave to serve notice of a writ on the defendant Corporation in

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New York claiming damages for breach of contract. The defendant Corporation
contended that the contract was made in Holland, Denning L. J. who delivered the
principal judgment of the Court observed at p. 332:
"When a contract is made by post it is clear law throughout the common law
countries that the acceptance is a complete as soon as the letter is put into
the post box, and that is the place where the contract is made. But there is
no clear rule about contracts is made by telephone or by Telex.
Communications by these means are virtually instantaneous and stand on a
different footing.
and after examining the negotiations made in a contract arrived at by
telephonic conversation on different stages, Denning L. J. observed that in
the case of a telephone conservation the contract is only complete when the
answer accepting the offer was made and that the same rule applies in the
case of a contract by communication by Telex. He recorded his conclusion as
follows.
"................... that the rule about instantaneous communications
between the parties is different from the rule about the post. The
contract is only complete when the acceptance is received by the
offeror: and the contract is made at the place where the acceptance
is received.
16. It appears that in a large majority of European countries the rule based on the
theory of consensus add idem, is that a contract takes place where the acceptance of
the offer is communicated to the offeror, and no distinction is made between
contracts made by post or telegraph and by telephone or Telex. IN decisions of the
State courts in the United States, conflicting views have been expressed, but the
generally accepted view is that by the technical law of contracts the contract is made
in the district where the acceptances is spoken. This is based on what is called the
deeply rooted principal of common law that where the parties impliedly or expressly
authorise a particular channel of communication, acceptance is effective when and
where it enters that channel of communication. In the text books there is no
reference to any decision of the Supreme Court of the United States of America on
this question: America Jurisprudence, 2nd Edn. Vo. 17, Art. 54 p. 392 and Williston
on Contracts, 3rd Edn Vo. No. 1 p.
17. Obviously the draftsman of the Indian contract Act did not envisage use of the
telephone as a means of personal conversation between parties separated in space,
and could not have intended to make any rule in that behalf. The question then is
whether the ordinary rule which regards a contract as completed only when
acceptance is intimated should apply, or whether the exception engrafted upon the
rule in respect of offers and acceptances by post and by telegrams is to be accepted.
If regard be had to the essential nature of conversation by telephone, it would be
reasonable to hold that the parties being in a sense in the presence of each other,
and negotiations are concluded by instantaneous communication of speech,
communication of acceptance is a necessary part of the formation of contract, and the
exception to the rule imposed on grounds of commercial expediency is inapplicable.
18. The trial Court was therefore right in the view which it has taken that a part of
the cause of action arose within the jurisdiction of the Civil City Court. Ahmedabad,
where acceptance was Communicated by telephone to the plaintiffs.

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19. The appeal therefore fails and is dismissed with costs.
M. Hidayatullah J.
2 0 . Where and when is the communication of an acceptance complete under the
Indian Contract Act. When parties complete their contract by long distance telephone?
On the answer to this question depends the Jurisdiction of the Court trying the suit
giving rise to this appeal. A contract was made on the telephone and the proposer
complains of its breach by the acceptor. We are hardly concerned with the terms of
the contract and they need not be mentioned. At the time of the telephonic
conversation the proposers who are plaintiffs in the suit [respondents here] were at
Ahmedabad and the acceptor, who is the defendant [appellant here] was at
Khamgaon in Vidharbha. The plaintiffs' suit has been instituted at Ahmedabad. If the
acceptance was complete and contract was made when the appellant spoke into the
telephone at Khamgaon, the Ahmedabad court would lack jurisdiction to try the suit.
It would, of course, be otherwise if the acceptance was complete only on the
reception of the speech at Ahmedabad and that was the place where the contract was
made.
21. The rules to apply in our country are statutory but the contract Act was drafted in
England and the English common law permeates it; however, it is obvious that every
new development of the common law England may not necessarily fit into the scheme
and the words of our statute. If the language of out enactment creates a non-
possumus adamant rule, which cannot be made to yield to any new theories held in
foreign courts out clear duty will be to read the statue naturally and to follow it. The
Court of appeal in England in Entores Ltd. v. Miles Far East Corporation (1955) 2
Q.B.D. 327, held that a contract made by telephone is complete only where the
acceptance is heard by the proposer [offeror in English common law] because
generally an acceptance must be notified to the proposer to make a binding contract
and the contract emerges at the place where the acceptance is received and not at the
place where it is spoken into the telephone. In so deciding, the court of Appeal did
not apply the rule obtaining in respect of contracts by correspondence or telegrams,
namely, that acceptance is complete as soon as a letter of acceptance is put into the
post box or a telegram is handed in for despatch, and the place of acceptance is also
the place where the contract is made. On reading the reasons given in support of the
decision and comparing them with the language of the Indian Contract Act I am
convinced that the Indian Contract Act does not admit our accepting the view of the
Court of Appeal.
22. Sir William Anson compared the proposal [offer in English common law] to a
train of gun powder and the acceptance to a lighted match. The picturesque
description shows that acceptance is the critical fact, even if it may not explain the
reason underlying it. It is, therefore, necessary to see why the rule about acceptance
by post or by telegram was treated as a departure from the general rule of law that
acceptance must be communicated. The rule about acceptance by post or telegram is
adopted in all countries in which the English Common law influence is felt and in
many others and, as will be shown later, the Indian Contract Act gives statutory
approval to it. That rule is that a contract is complete when a letter of acceptance,
properly addressed and stamped is posted, even if the letter does not reach the
destination or having reached it is not read by the proposer. The same principle
appeal is to telegrams. See Cowan v. O'Connor (1888) 20 Q.B.D. 640, Tinn v.
Hoffman and co. (1873) 29 L.T. 271. The first question is whether the general rule or
the special rule applies to contracts made on the telephone and the second what is

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the position under the Indian Contract Act. The answer to the first question is that
there is difference of opinion in the countries of the world on that point and to the
second that the Indian Contract Act does not warrant the acceptance of the decision
in the Entores case (1955) 2 Q.B.D. 327. To explain the true position, as I
understand it, I may start from the beginning.
23. A contract is an agreement enforceable by law and is the result of a proposal and
acceptance of the proposal. The proposal when accepted becomes a promise, Now it
may be conceded, that, as Bowen L. J. said in Carlill v. Carbolic Smoke Ball Co.
(1893) 1 Q.B.D. 256 :
".......................... as an ordinary rule of law an acceptance of an offer
made ought to be notified to the person who makes an offer, in order that
the two minds may come to there."
24. or, as Anson puts it, acceptance means in general a communicated Acceptance.
This is the English Common law rule and is also accepted in the United States,
Germany and France. The communication must be to the proposer himself unless he
expressly or impliedly provides that someone else may receive it. According to our
law also [S. 7] in order to convert a proposal into a promise the acceptance must be
absolute and unqualified and in the manner prescribed or in some usually and
reasonable manner. The intention to accepts must be expressed by some act or
omission of the party accepting. It must not be mental acceptance a propositum in
menti retentum though sometimes silence may be treated as acceptance. Section 3 of
our act says that the communications of acceptance is deemed to be made by an act
or omission of the party by which he intends to communicated such acceptance or
which has the effect of communicating it.
25. The difficulty arises because proposals and acceptances may be in presents or
inter absents and it is obvious that the rules must vary. In acceptance by words of
mouth, when parties are face to face, the rule gives gives hardly any trouble. The
acceptance may be by speech, or sign sufficiently expressive and clear to form a
communication of the intention to accept. The acceptance takes effect instantly and
the contract is made at the sometime and place. In the case of acceptance inter
absents the communication must be obviously by some agency. Where the proposer
prescribes a mode of acceptance that mode must be followed. In other cases a a
usual and reasonable manner must be adopted unless the proposer waives
notification. Cases in the last category are offers of reward for some service [such as
finding a lost purse or a stray dog [William v. Carwardine] 4 B & A 621, or fulfilling
some condition, such as trying a medicine [Carlill v. Carbolic Smoke Ball Co.-supra].
The offer being to the whole world, the acceptance need not be notified and the
contract is made when the condition is fulfilled.
26. Then come cases of acceptance by post, telegraph, telephone, wireless and so
on. In cases of contracts by correspondent or telegram, a different rule prevails and
acceptance is complete as soon as a letter of acceptance is posted or a telegram is
handed in for dispatch. One way to describe it is that acceptance is complete as soon
as the acceptor puts his acceptance in the course of transmission to the proposer so
as to be beyond his power to recall. Acceptance by post or telegram is considered a
usual mode of communications and it certainly is the most often followed. But letters
get lost or miscarried and telegram get garbled. What should happen if the letter got
lost in the post or the telegraphic message got mutilated or miscarried? It was held
as early as 1813 in Adams v. Lindsell (1813) 106 E.R. 250, that even in such a

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contingency acceptance must be taken to be complete as soon as the letter is posted
and not when it is delivered. It was observed:
"For if the defendant were not bound by their offer when accepted by the
plaintiffs till the answer was received, then the plaintiffs ought not to be
bound till after they had received the notifications that the defendants and
received their answer and assented to it and so it might go on ad infinitum.
".
27. Of course, if it is contemplated that the acceptance will be by post, what more
can be acceptor do than post the letter? The above question was asked by Lord
Cottenham in Dunlop v. Higgins(1948) 9 E.R. 805, and the Lord Chancellor also
asked the question: How can he be responsible for that over which he had no
control?"
28. Dunlop v. Higgins is the leading case in English Common law and it was decided
prior to 1872 when the Indian Contract Act was enacted. Till 1872 there was only one
case in which a contrary view was expressed [British and American Telegraph Co. v.
Colson [1871) 6 Ex. 108 , but it was disapproved in the following year in Harris' case
(1872) L.J.C. 625, and the later cases have always taken a different view to that in
Colson's case. In Henthorn v. Fraser (1892) 2 Ch. 27, Lord Hescehell considered that
Colson's case must be considered to be overruled. Earlier in 1879 4 Ex.216
[Household Fire Insurance Co. v. Grant]. Bramwell L. J. was assailed by doubts which
were answered by Thesiger L. J. in the same case:
"A contract complete on the acceptance of an offer being posted but liable to
being put an end to by any accident in the post, would be more mischievous
than a contract only binding on the parties upon the acceptance actually
reaching the offeror. There is no doubt that the implication of a complete,
final and absolutely binding contract being formed as soon as the acceptance
of an offer is posted may in some cases lead to hardship but it is difficult to
adjust conflicting rights between innocent parties. An offeror, if he chooses,
may always make the formation of the contract which he proposes,
dependent on the actual communication to himself of the acceptance. If he
trusts to the post, and it no answer is received, he can make inquires of the
person to whom the offer was addressed........ On the other hand if the
contract is not finally concluded except in the event of the acceptance
actually reaching the offeror, the door would be opened to the perpetration
of fraud; besides there would be considerable delay in commercial
transactions; for the acceptor would never be entirely safe in acting upon his
acceptance until he had received notice that his letter of acceptance has
reached its destination."
29. It is hardly necessary to multiply examples. It is sufficient to point out that Lord
Denning [then Lord Justice] in the Entores case also observes:
"When a contract is made by post it is clear law throughout the Common law
countries that the acceptance is complete as soon as the letter is put into the
post box, and that is where the contract is made."
30. Although Lord Romilly M. R. in Hebbs' case (1867) L.R. 4 Eq. 9, 12, said that the
post office was the common agent of both parties, in the application of this special
rule the post office is treated as the agent of the proposer conveying his proposal and
also as his agent for receiving the acceptance. The principles which underline the

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exceptional rule in English Common law are:
[i] the post office is the agent of the offeror to deliver the offer and also to
receive the acceptance;
[ii] no contract by post will be possible, as notification will have to follow
notifications to make certain that each letter was duly delivered;
[iii] satisfactory evidence of posting the letter is generally available;
[iv] if the offeror denies the receipt of the letter it would be very difficult to
disprove his negative; and
[v] the carrier of the letter is a third person over whom the acceptor has no
control.
31. It may be mentioned that the law in the United States is also the same. In the
American Restatement [Contract: $ 74] it is stated that a contract is made at the time
when and the place when the last act necessary for its formation is performed. In the
Volume on Conflict of laws, $326 reads:
"When an offer for a bilateral contract is made in one state and an
acceptance is sent from another state to the first state in an authorized
manner the place of contracting is as follows:
[a] If the acceptance is sent by an agent of the acceptor, the place of
contracting is the state where the agent delivers it;
[b] if the acceptance is sent by any other means, the place of
contracting is the state from which the acceptance is sent.
32. Comment on these clauses is:
[a] "When acceptance is authorized to be sent by mail, the place of
contracting is where the acceptance is mailed.
[b] When an acceptance is to be sent by telegraph, the place of contracting is
where the message of acceptance is received by the telegraph company for
transmission."
3 3 . Professor Winfield [writing in 1939] said that this rule prevailed in Canada,
South Africa, New Africa New South Wales. Dealing with the European countries he
said that three systems are followed : [1] the system of Information under which the
offeror must be notified and the contract is formed only when the offeror is so
informed. This prevailed in Belgium, Italy, Spain, Rumania, Bulgaria and Portugal;
[2] The system of declaration under which the contract is formed from the moment
when the recipient of the offer declares his acceptance, even without the knowledge
of the offeror. This system is divided into three theories:
"[1] theory of declaration stricto sensu, that is to say, declaration alone is
sufficient.
[ii] theory of expedition, that is to say, the sending of the acceptance by post
is enough though not a bare declaration;

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 [iii] theory of reception that is to say, the reaching of the letter is the
decisive factor whether the letter is read or not.
3 4 . The theory of reception as stated here is accepted in Germany Austira,
Czechoslovakia, Sweden, Norway, Denmark, Poland and the U. S. S. R. Prof. Winfield
however, concludes:
"But the greater majority of states accept either the theory of declaration
stricto sensu or the theory of expedition. Among many others Dr. De Visscher
[in his article in Revue de Droit International [1938] " Du moment et de lieu
de formation des contracts par correspondence en droit international prove?
Mentions Brazil, Egypt, Spain [Commercial Code], Japan, Morocco,
Mexico............ France................. in 1932 ......... decided in favour of
expending theory"
[3] The mixed or Electric system: In this the contract is formed when the
acceptance is received but it relates back to the time when the acceptance
was sent.
35. We now come to the question of telephone. Prof. Winfield expressed the opinion
that the rule which has been accepted for letters and telegrams should not be
extended to communications by telephone. He favoured the application of the general
rule that an acceptance must be communicated. He asked a question if the line is in
such bad working order that the offeror hears nothing and if the parties get in touch
again and the offer is cancelled before it is accepted, will there be a contract ? he
answered:
"It is submitted that there is no communication until the reply actually comes
to the knowledge of the offeror. In the first place, the telephone is much
more like conversation face to face than an exchange of letters ............ the
risk of mistake over the telephone is so great compared to written
communications that businessmen would demand or expect a written
confirmation of what is said over the telephone."
36. In this opinion Professor Winfield found support in the American Restatement
[Contract : $ 65].
"Acceptance given by telephone is governed by the principles applicable to
oral acceptance where the parties are in the presence of each other:
but he conceded that the decided cases in the United States are to
the Contrary. Williston [Contracts] at p. 238 gives all of them. In the
decided cases the analogy of post and telegraph I accepted for
telephone and it is observed.
"The point decided by these cases related to the place of a
contract rather than its existence, but the decision that the
place where the acceptor speaks is the place of the contract
necessarily involves the conclusion that it is the speaking of
the acceptor, not the hearing of the offeror, which completes
the contract. [See Traders G. Co. v. Arnold P. Gin Co-Tex
Civ. App. 225 S. W. 1011].
No doubt the decided cases are of the State courts but it is

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 hardly to be expected that a decision on such a point from
the Supreme Court of the United States would be easily
available. The Swiss Federal Code of obligations, it may be
mentioned, provides [Art. 4] Contracts concluded by
telephone are regarded as made between parties present if
they or their agents have been personally in
communications."
37. Williston whose revised edition [1939] was available to Dr. Winfield, Observed
that a contract by telegram suggested analogies to a contract by correspondence but
a contract over the telephone was more analogous to parties addressing each other in
presents and observed:
"A contract by telephone presents quite as great an analogy to a contract
made when the parties are orally addressing one another in each other's
presence. It has not been suggested that in the latter case the offeror takes
the risk of hearing an acceptance addressed to him. The contrary has been
held.............. If then it is essential that the offeror shall hear what is said to
him, or at least be guilty or some fault in not hearing, the time and place of
the formation of the contract is not when and where the offeror speaks, but
when and where the offeror hears or ought to hear and it is to be hoped that
the principles applicable to contracts between parties in the presence of each
other will be applied to negotiations by telephone."
38. The Entores case fulfilled the hope expressed by Williston and Professor Winfield.
Before I deal with that case I may point out that in Canada in Carrow Towing Co. v.
The Ed Mc William, (46 D.L.R. 506), it was held, as the headnote correctly
summarizes:
"Where a contract is proposed and accepted over the telephone, the place
where the acceptance takes place constitutes the place where the contract is
made. Acceptance over the telephone is of the same effect as if the person
accepting it had done so by posting a letter, or by sending off a telegram
from that place".
39. Similarly, in the Restatement [Conflict of laws] the comment in $ 326, partly
quoted before is:
[c] when an acceptance is to be given by telephone, the place of contracting
is where the acceptor speaks his acceptance;
[d] when it is by word of mouth between two persons standing on opposite
sides of a state boundary line, the place of contracting is where the acceptor
speaks at the time he makes his acceptance.
[e] This rule does not apply to an offer which requires for acceptance actual
communication of consent to the offeror. In that case, the place of
contracting is where the acceptance is received is accordance with the offer.
40. $ 64 in the Volume on contract Says:
"An acceptance may be transmitted by any means which the offeror has
authorized the offeree to use and, if so transmitted, is operative and
completes the contract as soon as put out of the offeree's possession,

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 without regard to whether it ever reached the offeror, unless the offer
otherwise provides".
41. It may be mentioned that in an old English case [Newcomb v. De Roos] (1859) 2
E & E 271, Hill J. observed:
"Suppose the two parties stood on different sides of the boundary line of the
district : and that the order was then verbally given and accepted. The
contract would be made in the district in which the order was accepted."
4 2 . This case was expressly dissented from in the Entores case to which I now
proceed. I have quoted at length from Professor Winfield, Williston and the American
Restatement because they lie beneath the reasons given by the court of Appeal.
43. The question in the Entores case (1955) 2 Q.B.D 327, was whether under the
Rules of the Supreme Court the action was brought to enforce a contract or to recover
damages or other relief for or in respect of the breach of a contract made within the
jurisdiction of the Court [or 11 r. 1]. As the contract consisted of an offer and its
acceptance both by a telex machine, the proposer being in London and the acceptor
in Amsterdam, the question was whether the Contract was made at the place where
the acceptor tapped out the message on his machine or at the place where the
receiving machine reproduced the message in London. If it was in London a writ of
Summons could issue, if in Amsterdam no writ was possible. Donovan J. held that
the contract was made in London. The court of Appeal approval the decision and
discussed the question of contracts by telephone in detail and saw no difference in
principle between the telex printer and the telephone and applied to both the rule
applicable to contracts made by word of mount. Unfortunately no leave to appeal to
the House of Lords could be given as the matter arose in an interlocutory proceeding.
44. The leading judgment in the case was delivered by Lord Denning [Then Lord
Justice] with whom Lord Birkett [then Lord Justice] and Lord Parker [then Lord
Justice] agreed. Lord Birkett gives no reason beyond saying that the ordinary rule of
law that an acceptance must be communicated applies to telephonic acceptance and
not the special rule applicable to acceptance by post or telegraph. Lord Parker also
emphasizes the ordinary rule observing that as that rule is designed for the benefit of
the offeror, he may waive it, and points out that the rule about acceptance by post or
telegraph is adopted on the ground of expediency. He observes that if the rule is
recognized that telephone or telex telecommunications [which are received
instantaneously] become operative though not heard or received, there will remain no
room for then general proposition that acceptance must be communicated. He
illustrates the similarity by comparing an acceptance spoken so softly as not to be
heard by the offeror when parties are face to face, with a telephone conversation in
which the telephone goes dead before the conversation is over.
45. Lord Denning begins by distinguishing contracts made by telephone or telex from
contracts made by post or telegraph on the ground that in the former the
communication is instantaneous like the communication of an acceptance by word of
mouth when parties are face to face. He observes that in verbal contracts, there is no
contact if the speech is not heard and gives the example of speech drowned in noise
from an aircraft. The acceptance, he points out, in such cases must be repeated again
so as to be heard and then only there is a contract. Lord Denning sees nothing to
distinguish contracts made on the telephone or the telex from those made by word of
mouth and observes that if the line goes dead or the speech is indistinct or the telex

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machine fails at the receiving end, there can be no contract till the acceptance is
properly repeated and received at the offeror's ends. But he adds something which is
so important that I prefer to quote his own words :
"In all the instances I have taken so far, the man who sends the message of
acceptance knows that it has not been received or he has reason to know it.
So he must repeat it. But, suppose that he does not know that his message
did not get home he thinks it has. This may happen it the listener on the
telephone does not catch the words of acceptance, but nevertheless does not
trouble to ask for them to be repeated: or the ink on the teleprinter fails at
the receiving end, but the clerk does not ask for the massage to be repeated:
so that the man who sends an acceptances reasonably believes that his
message has been received. The offeror in such circumstances is clearly
bound, because he will be estopped from saying that he did not receive the
message of acceptance. It is his own fault that he did not get it. But if there
should be a case where the offeror without any fault on his part does not
receive the message of acceptance - yet the sender of it reasonably believes
it has got home when it has not--then I think there is no contract."
46. Lord Denning thus holds that a contract made on the telephone may be complete
even when the acceptance is not received by the proposer. With respect I would point
out that Lord Denning does not say where the contract would be complete in such a
case. If nothing is heard at the receiving end how can it be said that the general rule
about a communicated acceptance applies? There is no communication at all. How
can it be said that the contract was complete at the acceptors end when he heard
nothing. If A says to B. Telephone your acceptance to me and the acceptance is not
effective unless A has heard it, the contract is not formed till A hearers it. It A is
estopped by reason of his not asking for the reply to be repeated, the making of the
contract involves a fiction that A has heard the acceptance. This fiction rests on the
rule of estoppel that A's conduct induced a wrong belief in B. But the question is why
should the contract be held to be concluded where A was and not on the analogy of
letter and telegram where B accepted the offer? Why, in such a case, not apply the
expedition theory?
47. Even in the case of the post the rule is one of assumption of a face and little
logic is involved. We say that the proposal was received and accepted at the
proposers end. Of course, we could have said with as much apparent logic that the
proposal was made and accepted at the proposer end. It is simpler to put the
acceptor to the proof that he put his acceptance in effective course of transmission,
than to investigation the denial of the proposer. Again, what would happen if the
proposer says that he heard differently and the acceptor proves what he said having
recorded it on a tape at his end? Would what the proposer heard be the contract if it
differs from what the acceptor said? Telegrams get garbled in transmission but if the
proposer asks for a telegram in reply he bears the consequences. As Ashurst J. said
in Lickbarrow v. Mason (1787) 102 E.R. 1192.
"Whenever one of two innocent parties must suffer by the act of third, he
who has enabled such person to occasion the loss must sustain it."
48. Other difficulties may arise. A contract may be legal in one state and illegal in
another. Williston reports one such case [Mullinix v. Hubbard] 109 C.C.A. 8, in which
the legality of a bargain dealing in cotton futures was held to be governed by New
York law when orders were telephoned from Arakansas as where such dealings were

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illegal, to New York city where they were legal. What happens when the acceptor
mistakes the identity of the proposer. One such case [Tideman and Co. v. McDonalo]
275 S.W. 70 , has led to much institutional discussion [See 39 Har L. R. 388] and
[1926] 4 Tax LR 252] quoted by Williston.
49. It will be seen from the above discussion that there are four classes of cases
which may occur when contracts are made by telephone: [1] where the acceptance is
fully hard and understood: [2] where the telephone fails as a machine and the
proposer does not hear the acceptor and the acceptor knows that his acceptance has
not been transmitted; [3] where owing to some fault at the proposers end the
acceptance is not heard by him and he does not ask the acceptor to repeat his
acceptance and the acceptor believes that the acceptance has been communicated;
and (4) where the acceptance has not been heard by the proposer and he informs the
acceptor about this and asks him to repeat his words. I shall take them one by one.
50. Where the speech is fully heard and understood there is a binding contract and in
such a case the only question is as to the place where the contract can be said to be
completed. Ours is that kind of a case. When the communication fails and the
acceptance is not heard, and the acceptor knows about it, there is no contract
between the parties at all because communications means an effective communication
or a communication reasonable in the circumstances, Parties are not ad idem all. If a
man shouts his acceptance from such a long distance that it cannot possibly be heard
by the proposer he cannot claim that he accepted the offer and communicated it to
the proposer as required by s. 3 of our contract Act, In the third case, the acceptor
transmits his acceptance but the same does not reach the proposer and the proposer
does not ask the acceptor to repeat his message. According to Lord Denning the
proposer is bound because of his default. As there is no reception at the proposers
end, logically the contract must be held to be complete at the proposer's end.
Bringing in considerations of estoppel do not solve the problem for us. Under the
terms of s. 3 of our Act such communication is good because the acceptor intends to
communicate his acceptance and follows a usual and reasonable manner and puts his
acceptance in the course of transmission to the proposer. He does not know that it
has not reached. The contract then results in much the same way as in the case of
acceptance by letter when the letter is lost and in the place where the acceptance was
put in course of transmission. In the fourth case if the acceptor is told by the offerer
that his speech cannot be heard there will be no contract because communication
must be effective communication and the act of acceptor has not the effect of
communicating it and he cannot claim that he acted reasonably.
51. We are really not concerned with the case of a defective machine because the
facts here are that the contract was made with the machine working perfectly
between the two parties. As it is the proposer who is claiming that the contract was
complete at his end, s. 4 of our act must be read because it crates a special rules. It
is a rather peculiar modification of the rule applicable to acceptance by post under
the English Common Law. Fortunately, the languages of s. 4 covers acceptance by
telephone wireless etc. The section may be quoted at this stage:
"4. Communication when complete.
52. The Communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made.
53. The Communication of an acceptance is complete:-

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 as against the proposer, when it is put in a course of transmission to him, so
as to be out of the power of the acceptor.
54. as against the acceptor, when it comes to the knowledge of the proposer.
55. It will be seen that the communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made but a different rule is made about
acceptance. Communications of an acceptance is complete in two ways [1] against
the proposer when it is put in the course of transmission to him so as to be out of the
power of the acceptor; and [2] as against the acceptor when it comes to the
knowledge of the proposer. They theory of expedition which was explained above has
been accepted. Section 5 of the Contract act next lays down that a proposal may be
revoked at any time before the communication of its acceptance is complete as
against the proposer, but not afterwards and an acceptance may be revoked at any
time before the communication of the acceptance is complete as against the acceptor,
but not afterwards. In the third case in may above analysis this section is bound to
furnish difficulties, if we were to accept that the contract is only complete at the
proposer's end.
5 6 . The present is a case in which the proposer is claiming the benefit of the
completion of the contract at Ahmedabad. To him the acceptor may say that the
communication of the acceptance in so far as he was concerned was complete when
he [the acceptor] put his acceptance in the course of transmission to him [the
proposer] so as to be out of his [the acceptor's] power to recall. It is obvious that the
word of acceptance was spoken at Khamgaon and the moment, the acceptor spoke
his acceptance he put it in course of transmission to the proposer beyond his recall.
He could not revoke his acceptance thereafter. It may be that the gap of time was so
short that one can say that the speech was heard instantaneously, but if we are to put
new inventions into the frame of our statutory law we are bound to say that the
acceptor by speaking into the telephone put his acceptance in the course of
transmission to the proposer, however quick the transmission. What may be said in
the English common Law, which is capable of being moulded by judicial dicta, we
cannot always say under our statutory law because we have to guide ourselves; by
the language of the statute. It is contended that the communication of an acceptance
is complete as against the acceptor when it comes to the knowledge of the proposer
but that clause governs cases of acceptance lost through the fault of the acceptor. For
example, the acceptor cannot be allowed to say that he shouted his acceptance and
communication was complete where noise from an aircraft overhead drowned his
words. As against him the communication can only be complete when it comes to the
knowledge of the proposer. He must communicate his acceptance reasonably. Such is
not the case here. Both sides admit that the acceptance was clearly heard at
Ahmedabad. The acceptance was put in the course of transmission at Khamgaon and
under the words of our statute I find it difficult to say that the contract was made at
Ahmedabad where the acceptance was heard and not at Khamgaon where it was
spoken. It is plain that the law was framed at a time when telephones, wireless,
Telstar and Early Bird were not contemplated. If time has marched and inventions
have made it easy to communicate instantaneously over long distance and the
language of our law does not fit the new conditions it can be modified to reject the
old principles. But we cannot go against the language by accepting an interpretation
given without considering the language of our Act.
57. In my opinion, the language of s. 4 of the Indian Contract Act covers the case of
communication over the telephone. Our Act does not provide separately for post,

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telegraph, telephone or wireless. Some of these were unknown in 1872 and no
attempt has been made to modify the law. It may be presumed that the language has
been considered adequate to cover cases of these new inventions. Even the court of
Appeal decision is of 1955. It is possible today not only to speak on the telephone
but to record the spoken words on a tape and it is easy to prove that a particular
conversation took place. Telephones now have television added to them. The rule
about lost letters of acceptance was made out of expediency because it was easier in
commercial circles to prove the dispatch of the letters but very difficult to disprove a
statement that the letter was not received. If the rule suggested is accepted it would
put a very powerful defence in the hands of the proposer if his denial that he heard
the speech could take away the implications of our law that acceptance is complete as
soon as it is put in course of transmission to the proposer.
5 8 . No doubt the authority of the Entores case is there and Lord Denning
recommended an uniform rule, perhaps, as laid down by the Court of Appeal. But the
court of Appeal was not called upon to construe a written law which brings in the
inflexibility of its own language. It was not required to construe the words: The
communication of an acceptance is complete as against the proposer, when it is put
in a course of transmission to him, so as to be out of the power of the acceptor.
59. Regard being had to the words of our statute I am compelled to hold that the
contract was complete at Khamgaon. It may be pointed out that the same result
obtains in the Conflict of law's as understood in America and quite a number of other
countries such as Canada. France, Etc. also apply the rule which I have enunciated
above even though there is no compulsion of any statute. I have, therefore, less
hesitation in propounding the view which I have attempted to set down here.
60. In the result I would allow the appeal with costs.
ORDER
61. In view of the opinion of the majority the appeal is dismissed with costs.

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